The concept of unbundling of legal services seems a major discussion point these days. Clients decide they do not need – or, more importantly, do not want to pay for - specified services, so they retain lawyers to perform some services and the clients take responsibility for the remainder. Sounds nice in theory, but, in practice, determining who is supposed to do what is not that simple – as demonstrated in Outaouais Synergest Inc. v. Keenan (2013) O.R. (3d) 742 (C.A.).
The City of Ottawa wanted to open up some of its lands for development. To that effect, it agreed with a farmer that it would build a road through the farm, greatly increasing the value of the land. In return, farmer agreed to pay a portion of the road cost, but only once farmer sold the land. The parties effected this deal by a transfer from farmer to Ottawa of the road allowance and a 0.3 metre reserve on farmer's adjoining lands. The reserve would be lifted by way of a payment of funds set out in a formula, a variable of which was the cost of building the road. The transfer to Ottawa included a restrictive covenant referencing the formula. For some inexplicable reason, no one registered the cost recovery agreement itself.
Farmer agreed to sell part of his land to purchaser for $850,000. After closing, "to its considerable surprise", purchaser discovered that Ottawa wanted $433,000 to lift the 0.3m access. Why was the purchaser surprised?
Farmer and his lawyer both well knew of the agreement with Ottawa. They did not give purchaser a copy. Instead, they inserted in the agreement for sale, "The Purchaser shall be responsible to satisfy all municipal development charges for the property including all costs recovered to the City of Ottawa to its .3 metre reserve." Further, the agreement was conditional "Upon the Purchaser, at its own expense, satisfying itself with regard to ... ingress and egress to the property for the use intended ..."
Farmer testified he inserted those clauses in the agreement to notify purchaser of the charges it would have to pay. Purchaser's lawyer spoke to purchaser's real estate agent, who told him that the clauses referred to a standard administration fee, about $200, to lift the reserve when site plan obligations were fulfilled.
Since lawyer and purchaser had agreed that purchaser would deal with development issues, lawyer assumed this reserve related to development issues and investigated no further. Purchaser did not investigate at all.
Purchaser's lawyer searched title to the lands. He noted that the roadway had not yet been dedicated as public lands and requisitioned the production and registration of the appropriate bylaw. He also requisitioned evidence that there were no unregistered restrictions affecting the property.
To the 1st requisition, farmer's lawyer undertook to ensure compliance, but noted that "dedication shall not include the .3m reserves along Kenaston Street/Algoma Road and the subject property ... since such reserves shall only be dedicated after [Outaouais] has satisfied the conditions for development set by the City of Ottawa, including payment of development fees and costs recovered by the City of Ottawa from the Transferee for the .3m reserve."
To the 2nd requisition, farmer's lawyer answered, "Satisfy yourself."
Purchaser's lawyer understood from the first answer that the reserves would not be dedicated until purchaser satisfied Ottawa's development conditions. He did not view the words as a tipoff that purchaser would have to pay for road costs. He understood from the second answer that farmer's lawyer was not aware of any unregistered agreements.
What planet was this lawyer on? We all know what the answer really means. How about "Gojump in the lake?" My office censors excised what I really wanted to say.
Purchaser's lawyer had a duty "to perform the services for which he or she has been retained in a reasonably competent and diligent manner." Did he? He claimed that everything dealing with the reserve was a development issue and, therefore, not something he was retained to investigate. The trial judge and the court disagreed.
The court noted that legal matters relating to title and access are not normally matters delegated to a client. According, using the testimony of lawyer's own expert witness, the court held that lawyer did not establish a "bright line" to differentiate the roles of lawyer and his client. Without that differentiation, lawyer had a duty to explain "the clauses that require due diligence inquiries by the purchaser and ensure the client understands the consequences of waiving the conditions."
Purchaser's lawyer did not explain the clauses to purchaser, did not check with Ottawa to understand what they meant, and did not search the abutting lands (i.e. the roadway) to ensure there was no Planning Act problem (and therefore did not discover the restrictive covenant). In short, purchaser's lawyer breached his duty of care to his client and was responsible for the charges that purchaser had to pay to Ottawa to gain access to its lands from the road.
Purchaser's lawyer looked to farmer for compensation. He claimed that farmer knew of the agreement and hid it from purchaser.
The court noted that the caveat emptor doctrine applied to the agreement. It was conditional on purchaser satisfying itself regarding access; purchaser failed to do so. Farmer did not hinder purchaser from making these enquiries. Further, the clause in the agreement referencing the 0.3m reserve was inserted to notify purchaser of the charges due.
Lawyer relied on exceptions to the doctrine. He contended that the clauses farmer used were half-truths and therefore fraudulent misrepresentations. He also alleged that farmer breached a duty of good faith in failing to disclose the agreement and his conduct reached the unconscionable level required for equitable fraud.
The court held that the clauses, while not perfectly clear, were specific enough to put purchaser on notice.
As to the good faith argument, lawyer knew of the cost recovery clause and failed to make enquiries. Why does a vendor have to assist a purchaser in its searches?
As to equitable fraud, it has three applications:
1. Preventing a party from relying on a limitation period or other statutory provision that would otherwise exonerate the party from liability.
2. As a precondition to contract rectification for unilateral mistake.
3. Establishing a breach of a fiduciary duty or other equitable obligation.
The court held that none of these situations applied and that there was no basis to find equitable fraud or that farmer acted in bad faith.
While a division of responsibilities between lawyer and client may seem a good cost saver, it may cost more in time and risk to differentiate the duties than the anticipated savings for the reduced services.
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